Senate disaster aid bill | Bayer woes mount | U.S/Iran issues flare | Pompeo and Putin
— U.S./China trade policy update:
- Trump is at it again today issuing these tweets: “China buys MUCH less from us than we buy from them, by almost 500 Billion Dollars, so we are in a fantastic position. Make your product at home in the USA and there is no Tariff. You can also buy from a non-Tariffed country instead of China. Many companies are leaving China... ...so that they will be more competitive for USA buyers. We are now a much bigger economy than China, and have substantially increased in size since the great 2016 Election. We are the “piggy bank” that everyone wants to raid and take advantage of. NO MORE! We can make a deal with China tomorrow, before their companies start leaving so as not to lose USA business, but the last time we were close they wanted to renegotiate the deal. No way! We are in a much better position now than any deal we could have made. Will be taking in... Billions of Dollars, and moving jobs back to the USA where they belong. Other countries are already negotiating with us because they don’t want this to happen to them. They must be a part of USA action. This should have been done by our leaders many years ago. Enjoy!”
- China remarks. "My understanding is that China and the United States have agreed to continue pursuing relevant discussions. As for how they are pursued, I think that hinges upon further consultations between the two sides," Chinese Foreign Ministry spokesman Geng Shuang said during a weekly briefing. "We hope that the U.S. side does not misjudge the situation and not underestimate China's determination and will to safeguard its interests."
- The trade war escalated Monday as Beijing said as of June 1 it would raise tariffs on $60 billion of American goods, fueling the biggest plunge in U.S. stock prices since January. The tariff increases would hit a wide range of sectors ranging from manufacturing to agriculture and household goods. Beijing said 2,493 items coming from the U.S. would have tariffs increased to 25% from June 1. Those included LNG, agricultural items, compounds such as potassium sulphate, commonly used in fertilizer, and manufactured products such as LED lightbulbs. On two other lists of 1,078 and 974 items, tariffs would be raised to 20% and 10%, respectively. Those lists included household goods, along with apparel and related manufacturing equipment. A smaller list of 595 items would not see an increase beyond the present level of 5%. Among those items were chemicals and industrial materials such as formaldehyde and lithium. Electronic and motorized devices such as starters for the engines of cars, planes and boats, and 3D printers would also be spared an increase.
- The Trump administration on Monday detailed a plan to hit a further $300 billion in Chinese imports with 25% tariffs, but they would not be imposed until the end of a comment period running through to late June (link to the list). The Trump administration said it was excluding rare earth minerals and pharmaceuticals. The U.S. Trade Representative is seeking public comments on the tariffs through June 17, the date of a hearing on the levies. Post-hearing rebuttals could be submitted by June 24, so the tariffs are not expected to be imposed before then. Goods from China that were already in transit before last Friday will still be subject to tariffs of 10%, as long as they arrive in the U.S. before June 1 (link for details). President Trump said no final decision had been made on whether he would proceed with them. “I love the position we’re in,” Trump told reporters at the White House. “I think it’s working out really well.”
- Prospects of a U.S./China trade rapprochement are at least visible, despite comments from both countries, China watchers note, especially following word from President Trump that he would meet with Chinese leader Xi Jinping in late June at the G20 confab in Japan on June 28-29. But traders are now skeptical of any upbeat news after several attempts to reach an agreement end zone faltered. Lingering differences are profound, including a U.S. push to get the negotiated provisions enshrined in Chinese law.
- Areas for a final agreement are at least evident. Liu He, China’s vice premier and chief negotiator in the trade talks, told state media that China’s demands are a removal of U.S. tariffs, better terms of procurement, and “balanced text” in the trade agreement, adding the text “must be balanced and expressed in terms that are acceptable to the Chinese people and do not undermine the sovereignty and dignity of the country,” wrote the People’s Daily, a state mouthpiece, over the weekend. U.S. negotiators and President Trump are stressing verifiable enforcement of key requests, some the Chinese say overreach what they can deliver on.
- China's currency, the renminbi, fell as much as 0.5% and almost 1% in offshore trading. Since President Donald Trump first threatened to escalate the trade war on May 5, the renminbi has fallen 1.3% against the dollar to a five-month low. A weaker currency makes Chinese goods cheaper for U.S. buyers, helping offset the impact of higher tariffs.
- Latest fear of U.S. soybean growers: unshipped purchases of U.S. soybeans by China. Another 7.4 million tonnes have been sold but not yet shipped. Farmers now fret that China will cancel the sales.
- Lower odds for Trump's Friday tweets his administration would buy $15 billion of commodities to donate to poor, needy nations; another approach likely. U.S. law requires an analysis of whether the receiving country would be able to store the inbound foodstuffs, to prevent them from rotting, and for the U.S. to assess whether the aid would undermine local farmers, according to a report by the Congressional Research Service. And as previously noted, rival agricultural exporters would likely raise objections to any program as export subsidies, which are banned under World Trade Organization rules. President Trump said on Monday that his administration was planning to provide about $15 billion in aid to help U.S. farmers whose products may be targeted with tariffs by China in a deepening trade war. "We're going to take the highest year, the biggest purchase that China has ever made with our farmers, which is about $15 billion, and do something reciprocal to our farmers so our farmers can do well," Trump told reporters at the White House.
- Tariff update: The Treasury Department has collected $39 billion in customs duties over the first seven months of the current fiscal year that began Oct. 1, roughly $18 billion more than in the same period one year earlier.
- Nearly half of applicants clear first hurdle to avoid tariffs. Companies hoping to sidestep the recent increase in tariffs on many imports from China may take heart from data released by the U.S. Trade Representative's Office: more than 40% of those seeking exclusions for specific products have won at least a preliminary thumbs up. Of the 13,757 requests for exclusions of specific products from tariffs as of May 10, the USTR has reached a preliminary decision on 13,007, granting 1,957 and giving 4,089 approval in an initial substantive review. Almost 7,000 requests were denied. The exclusions handed down so far are on the first round of $50 billion in affected imports and are generally retroactive to July 6, 2018. They apply for one year after the date when the approval is published in the Federal Register. Each exclusion applies not just for the company that seeks it but for any identical product, regardless of the importer. According to Congressional Quarterly, the 4,089 requests that have reached Stage 3 approval on the merits await only a green light on the issue of being administrable, with U.S. Customs and Border Protection input the key. It is unclear from the data what proportion fail on the administrability test. Only 748 requests remain at Stage 2 in which the substantive review is still underway.
— Senate likely to vote on disaster aid bill next week. Sen. Richard Shelby (R-Ala.), chairman of the Senate Appropriations Committee, told reporters Monday that both sides were still talking, and he expressed cautious optimism that a deal could be reached by next week. Senate Republicans made a "very complex" disaster aid offer to Democrats last week, said Shelby, who told reporters that Democrats are reviewing the latest proposal in a series of monthslong, back-and-forth negotiations. "We're trying to move past a standoff," he said.
— Australia agency lowers El Niño expectations. The outlook for El Niño to arrive in 2019 has been lowered by the Australian Bureau of Meteorology, now putting their El Niño/Southern Oscillation (ENSO) Outlook at El Niño Watch, meaning approximately a 50% chance the event will happen. International models surveyed by the Bureau indicate that sea surface temperatures in the tropical Pacific are likely to remain near El Niño thresholds in until mid-summer in the U.S., before cooling into the late-summer to early fall. "By August, two of the eight models are clearly at El Niño levels, with another two near El Niño thresholds," the agency said.
— Other items of note:
Court orders Bayer to pay $2 billion in alleged Roundup cancer case. A California court ordered the German group to pay more than $2bn in damages to a pair of cancer patients — the biggest setback yet in its escalating US legal battle over glyphosate. The sum was awarded to Alva and Alberta Pilliod, an elderly couple who claimed that their non-Hodgkin’s lymphoma was caused by exposure to Roundup, a glyphosate-based weedkiller made by Monsanto. Bayer acquired the U.S. company last year in a $63 billion takeover. The ruling — issued by a jury in Oakland, California — is the third consecutive courtroom defeat for Bayer. Bayer said in a statement that it was “disappointed with the jury’s decision” and promised to appeal against the verdict. “The consensus among leading health regulators worldwide [is] that glyphosate-based products can be used safely and that glyphosate is not carcinogenic,” the group said. Monday’s jury award was the highest in the US so far this year and the eighth-largest in a product-defect claim, according to Bloomberg data. Bayer said it was disappointed with the jury’s decision and planned to appeal, adding that it "conflicts directly" with the EPA's finding that there are "no risks to public health from the current registered uses of glyphosate."
Barr taps U.S. attorney in Connecticut to investigate origins of Russia probe. Attorney General William P. Barr has tapped John H. Durham, the U.S. attorney for the District of Connecticut, to investigate the origins of the special counsel probe into Russian interference in the 2016 election.
Montana Gov. Steve Bullock has entered the 2020 Democratic presidential candidate field. He is the 23rd Democrat to jump into the field. In a video posted online this morning, Bullock characterized himself as the most electable candidate in the field, and the only one who had won statewide office three times at the same time Republican presidential nominees carried his state.
U.S. Sec. of State Mike Pompeo sits down with Vladimir Putin today. After making an unplanned stop in Brussels to meet with European leaders, Pompeo is due to discuss arms control, election interference, Iran, Ukraine, Venezuela, and North Korea with Russia’s president in Sochi.
“The drums of war are beating once again," the Economist writes in its cover story. "The potential for miscalculation is large and growing. American troops are within miles of Iranian-backed forces in Iraq and Syria. Its warships are nose to nose with Iranian patrols in the Gulf." The New York Times reported (link) that Acting Defense Secretary Patrick Shanahan recently presented an updated military plan that envisions sending as many as 120,000 troops to the Middle East should Iran attack American forces or accelerate work on nuclear weapons. The revisions — ordered by hard-liners led by John Bolton, the national security adviser — reflect Bolton’s influence and sharp divisions within the administration over how to respond to Tehran.
— Markets. The Dow on Monday plummeted 617.38 points, 2.38%, at 25,324.99. The Nasdaq dropped 269.92 points, 3.41%, at 7,647.02. The S&P 500 was down 69.53 points, 2.41%, at 2,811.87.